Specialization Project on

MERGERS AND ACQUISITIONS IN INDIA IN

FMCG SECTOR
Submitted in partial fulfilment for the award of the degree of

Master of Management Studies (MMS)

(under University of Mumbai)

Submitted By

ADVAIT DEEPAK SHIRALI

Roll no: F-49

Under the Guidance of

CA UMESH KOLAPKAR

2016-18

PTVA’s Institute of Management

Vile Parle (E), Mumbai – 400 057.

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INSTITUTE CERTIFICATE

ii
 DECLARATION

I hereby declare that this Project Report submitted by me to the University of Mumbai is a
bonafide work undertaken by me and it is not submitted to any other University or Institution
for the award of any degree diploma/ certificate or published any time before.

Name: Advait Shirali

Roll No: F-49

Signature of the student

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 Acknowledgement
I am highly indebted to CA Umesh Kolapkar, Project Mentor for his guidance and constant
supervision as well as for providing necessary information regarding the project and also for
their support in completing the project.

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 Table of Contents

Sr. No. Topic Page Nos

1 Introduction 1-4

2 Review of Literature 5-6

3 Methodology 7-8

4 Results 9-11

5 Discussion 12-19

6 Conclusion 20

7 Bibliography/ References 21

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 Introduction
Till the year 1988, the concept of Merger and Acquisition in India was not much popular.
During that period a very small percentage of businesses in the country used to come together,
mostly into a friendly acquisition with a negotiated deal. The key factor contributing to fewer
companies involved in the merger is the regulatory and prohibitory provisions of MRTP
(Monopolistic and Restrictive Trade Practices) Act, 1969. According to this Act, a company
or a firm has to follow a pressurized and burdensome procedure to get approval for the merger
and acquisitions. Merger and Acquisitions (M&A) have been a very important market entry
strategy as well as an expansion strategy. The concept of mergers and acquisitions is very
much popular in the current scenario. Consolidation through mergers and acquisitions is
considered as one of the best ways of restructuring structure of corporate units. M&A gives a
new life to the existing companies.

What is a Merger and Acquisition?

Merger is defined as a combination of two or more companies into a single company where
one survives and the other loses their corporate existence. The survivor acquires the assets as
well as liabilities of the merged company or companies. It is simply a combination of two or
more businesses into one business. Laws in India use the term ‘amalgamation’ for merger. It
usually involves two companies of the same size and stature joining hands. There are different
types of concept in which merging of the companies take place like, Horizontal Merger,
Vertical Merger, Conglomerate Merger, and Reverse Merger.

Acquisition in a general sense means acquiring the ownership in the property. It is the
purchase by one company of controlling interest in the share capital of another existing
company. Even after the takeover, although there is a change in the management of both the
firms, companies retain their separate legal identity. The Companies remain independent and
separate; there is only a change in control of the Companies.
Introduction to FMCG Sector in India:

Fast-moving consumer goods (FMCG) sector is the 4th largest sector in the Indian economy
with Household and Personal Care accounting for 50 per cent of FMCG sales in India.
Growing awareness, easier access and changing lifestyles have been the key growth drivers
for the sector. The urban segment (accounts for a revenue share of around 40 per cent) is the
largest contributor to the overall revenue generated by the FMCG sector in India and recorded
a market size of around US$ 29.4 billion in 2016-17. However, in the last few years, the
FMCG market has grown at a faster pace in rural India compared with urban India. Semi-
urban and rural segments are growing at a rapid pace and FMCG products account for 50 per
cent of total rural spending.

Market Size

The Retail market in India is estimated to reach US$ 1.1 trillion by 2020 from US$ 672
billion in 2016, with modern trade expected to grow at 20 per cent - 25 per cent per annum,
which is likely to boost revenues of FMCG companies. In 2016-17, revenue for FMCG sector
have reached US$ 49 billion and is expected to grow at 9-9.5 per cent in FY18 supported by
expectations of the total consumption expenditure reaching nearly US$ 3,600 billion by 2020
from US$ 1,469 billion in 2015. Direct selling sector in India is expected to reach Rs 159.3
billion (US$ 2.5 billion) by 2021, if provided with a conducive environment through reforms
and regulation.

Investments/ Developments

The government has allowed 100 per cent Foreign Direct Investment (FDI) in food processing
and single-brand retail and 51 per cent in multi-brand retail. This would bolster employment
and supply chains, and also provide high visibility for FMCG brands in organised retail
markets, bolstering consumer spending and encouraging more product launches. The sector
witnessed healthy FDI inflows of US$ 12.60 billion, during April 2000 to September 2017.
Some of the recent developments in the FMCG sector are as follows:

 The Hershey Co plans to invest US$ 50 million over the next five years in India, its
fastest growing core market outside of US.

 As a part of its Rs 25,000 crore (US$ 3.88 billion) investment package, ITC will invest
Rs 10,000 crore (US$ 1.55 billion) to expand its food processing segment.

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  The bottling arm of Coca-Cola India, Hindustan Coca-Cola Beverages (HCCB) is
planning to increase its retail reach by one million new outlets and is targeting a
revenue of US$ 2.5 billion by 2020.

 Future Retail will acquire HyperCity, which is owned by Shoppers Stop for Rs 911
crore (US$ 139.7 million) to further consolidate its business and have a better footing
in the hypermarket segment.

Government initiatives

Some of the major initiatives taken by the government to promote the FMCG sector in India
are as follows:

 In the Union Budget 2017-18, the Government of India has proposed to spend more
on the rural side with an aim to double the farmer’s income in five years; as well as
the cut in income tax rate targeting mainly the small tax payers, focus on affordable
housing and infrastructure development will provide multiple growth drivers for the
consumer market industry.

 The Government of India’s decision to allow 100 per cent Foreign Direct Investment
(FDI) in online retail of goods and services through the automatic route has provided
clarity on the existing businesses of e-commerce companies operating in India.

 With the demand for skilled labour growing among Indian industries, the government
plans to train 500 million people by 2022 and is also encouraging private players and
entrepreneurs to invest in the venture. Many governments, corporate and educational
organisations are working towards providing training and education to create a skilled
workforce.

 The Government of India has drafted a new Consumer Protection Bill with special
emphasis on setting up an extensive mechanism to ensure simple, speedy, accessible,
affordable and timely delivery of justice to consumers.

 The Goods and Services Tax (GST) is beneficial for the FMCG industry as many of
the FMCG products such as Soap, Toothpaste and Hair oil now come under 18 per
cent tax bracket against the previous 23-24 per cent rate.

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Road Ahead

Rural consumption has increased, led by a combination of increasing incomes and higher
aspiration levels; there is an increased demand for branded products in rural India. The rural
FMCG market in India is expected to grow at a CAGR of 14.6 per cent, and reach US$ 220
billion by 2025 from US$ 29.4 billion in 2016.

On the other hand, with the share of unorganised market in the FMCG sector falling, the
organised sector growth is expected to rise with increased level of brand consciousness, also
augmented by the growth in modern retail.

Another major factor propelling the demand for food services in India is the growing youth
population, primarily in the country’s urban regions. India has a large base of young
consumers who form the majority of the workforce and, due to time constraints, barely get
time for cooking.

Online portals are expected to play a key role for companies trying to enter the hinterlands.
The Internet has contributed in a big way, facilitating a cheaper and more convenient means
to increase a company’s reach. By the year 2025, e-commerce will contribute around 10-15
per cent sales of few categories in the FMCG sector*.

Mr Mark Mobius, Executive Chairman, Templeton EM, opined that the Goods and Services
Tax (GST) will lead to mergers and rise of world class consumer companies in India. GST
and demonetisation are expected to drive demand, both in the rural and urban areas, and
economic growth in a structured manner in the long term and improve performance of
companies within the sector.

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 Review of Literature

(1)

The Internationalization of Firms From India: Investment, Mergers and

Acquisitions

Deepak Nayyar (2008) The Internationalization of Firms From India: Investment, Mergers
and Acquisitions, Oxford Development Studies, 36:1, 111-131

This paper analyses the rapid expansion in outflows of foreign direct investment from India
and the spurt in foreign acquisitions by Indian firms, during the past decade, situated in the
wider context of international investment from developing countries. Much of the investment
was in manufacturing activities and most of the acquisitions were in industrialized countries.
The economic stimulus and the strategic motive for the internationalization of firms from
India were provided by a range of underlying factors driving the process, which differed
across sectors and firms. The rapid growth in investment and acquisitions by Indian firms
were partly attributable to factors implicit in the liberalization of the policy regime and the
greater access to financial markets; but it must be recognized that Indian firms could not have
become international without the capacity and the ability to compete in the world market. The
attributes of Indian firms, which created such capacities and abilities, are embedded in the
past and have emerged over a much longer period of time.

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(2)

Comparison of Post-Merger performance of Acquiring Firms (India)

involved in Domestic and Cross-border acquisitions

Saboo, Sidharth and Gopi, Sunil (2009): Comparison of Post-Merger performance of

Acquiring Firms (India) involved in Domestic and Cross-border acquisitions.

Mergers and acquisitions are used for improving competitiveness of companies and gaining
competitive advantage over other firms through gaining greater market share, broadening the
portfolio to reduce business risk, entering new markets and geographies, and capitalising on
economies of scale etc. India has emerged as one of the top countries with respect to merger
and acquisition deals. Indian companies have been actively involved in mergers and
acquisitions in India domestically as well as internationally. The value share of deals where
India has been a target or an acquirer has risen sharply over the past decade, from $2.2 billion
in 1998 to $62 billion in 2007. As India increases its participation in M&A deals, it is
instructive to compare the domestic and cross-border acquisitions due to their distinctiveness.
The distinction between them is a function of the change in market integration which changes
the costs and benefit structure and also the difference in synergies – social, cultural and
organisational. This research study was aimed to study the impact of mergers on the operating
performance of acquiring firms by examining some pre- merger and post-merger financial
ratios of these firms and to see the differences in the pre-merger and post-merger ratios of the
firms that go for domestic acquisitions and the firms that go for the international/cross-border
acquisitions. The results suggest that there are variations in terms of impact on performance
following mergers, depending on the type of firm acquired – domestic or cross-border. In
particular, mergers have had a positive effect on key financial ratios of firms acquiring
domestic firms while a slightly negative impact on the firms acquiring cross-border firms.

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 Methodology
The project is completely based on Secondary data.

The following are the various methods of undertaking mergers and acquisitions:

Sale of Majority of Assets

In a merger / acquisition of one by another company, one company buys out the majority of
assets of the other company. The control is transferred to the acquirer after approval of
majority of shareholders of the target company. The acquirer usually only takeover liabilities
that are attached to the purchased assets, which means that other liabilities are retained by the
target company and paid off by them through their own means. Acquirer may, at times,
decides to take up liabilities too. Shareholders have the same rights after the merger, since
they are entitles to a divided, which is usually higher after the merger.

Stock for Assets

In this type of transaction, one entity buys outs the other one for a certain number of shares.
The target company dissolves, passing all its assets to the acquirer. The control is established
after approval from acquirer Company’s management. For the target company, vote of
approval from majority shareholders is required for the dissolution. All the liabilities attached
to the assets of Target Company are passed on to the acquirer company, while all other
liabilities are retained by the target company unless acquirer volunteers to take them on as
well. Shareholders after the merger are likely to receive a higher dividend.

Stock for Stock

Stock for stock transaction involves two companies, where one entity buys shares in another
company from its shareholders. The target’s company’s assets are passed on to the acquirer,
while the target company is run as a subsidiary of the acquirer. A new stock has to be created
for this kind of merger, which means that the majority of the acquirer company’s shareholders
are required to approval the merger. The shareholders of the target company are able to
individually decide whether they want to participate or not. The merger entails limited
liabilities for the acquirer in terms of target’s company liabilities. If shareholders decide not to
sell their shares, they might be frozen out.

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Merger/Consolidation

This kind of transaction requires the presence of two companies. One company purchased the
other, or alternatively both dissolve and become a new company. In this case, both companies
require approval from majority of shareholders. The company or the acquirer takes up all
rights and all liabilities, some of which are unknown to both corporations. Shareholders retain
the right to receive dividends, in addition to retaining dissenter’s appraisal rights. This is the
most common sort of merger, which basically means that one company is absorbed into the
other one. Assets are taken over, while liabilities are cleared at the time of the merger or
takeover the acquirer.

Dissolution

Dissolution involves only one corporation, since the company is being dissolved. If the
company wants to dissolve voluntarily, it needs the majority vote by shareholders in addition
to filing with the state. At times, courts order involuntary dissolution in certain cases such as a
deadlock situation. The control is usually held by majority vote by shareholders. In the case of
dissolution, all liabilities must be cleared, although any future liability is absolved.
Dissolution usually means that the company does not exist anymore, which means its
operations are wrapped up during the process dissolution.

Tender Offer

This merger is similar to stock for stock, the only difference being the shareholders are
offered money in exchange for their shares, after which the target company is dissolved,
merged or run as a subsidiary. Management approval is needed since the acquirer usually
borrows to finance the merger. While individual shareholders of Target Company may sell at
their will, although a controlling percentage of target company’s shared is required for this
mergers. After the purchase of shares, the acquirer has limited liability in terms of target’s
company financial obligations. After the merger, shareholders can expect a higher dividend,
while shareholders of target have no right, since they are no hold shares.

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 Results

Some Mergers and Acquisitions deals in FMCG in India:

 Jyothy Laboratories Ltd.- Henkel India ( May 2011)

 Dabur India Ltd.- Namaste Group ( January 2011)
 Hindustan Unilever Ltd.- Indulekha ( December 2015)

Pre-Merger and Post-Merger Earnings of the above mentioned 3 acquiring

companies:

Jyothy Laboratories Ltd. Pre-Merger and Post-Merger Earnings: (in Rs.

Crores)

Pre-Merger Earnings: (March ’11) Post-Merger Earnings: (March ’12)

80.27 83.52

Dabur India Ltd. Pre-Merger and Post-Merger Earnings: (in Rs. Cr)

Pre-Merger Earnings: (March ’10) Post-Merger Earnings: (March ’11)

433.14 471.41

Hindustan Unilever Ltd. Pre-Merger and Post-Merger Earnings: (in Rs.

Cr)

Pre-Merger Earnings: (March ’15) Post-Merger Earnings: (March ’16)

4,315.26 4,082.37

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Earnings per Share, Dividends per Share and Price-Earnings Ratio of the 3
acquiring companies:

1) Jyothy Laboratories Ltd.

Pre-Merger EPS and Post-Merger EPS: (in Rs. Cr.)

Pre-Merger EPS (March ’11) Post-Merger EPS (March ’12)
10.35 10.36

Pre-Merger DPS and Post-Merger DPS: (in Rs. Cr.)

Pre-Merger DPS (March ’11) Post-Merger DPS (March ’12)
5.00 2.50

Pre-Merger P/E and Post-Merger P/E Ratio:

Pre-Merger P/E (March ’11) Post-Merger P/E (March ’12)
20 16.67

2) Dabur India Ltd.

Pre-Merger EPS and Post-Merger EPS: (in Rs. Cr.)

Pre-Merger EPS (March ’10) Post-Merger EPS (March ’11)
4.99 2.71

Pre-Merger DPS and Post-Merger DPS: (in Rs. Cr.)

Pre-Merger DPS (March ’10) Post-Merger DPS (March ’11)
2.00 1.15

Pre-Merger P/E and Post-Merger P/E Ratio:

Pre-Merger P/E (March ’10) Post-Merger P/E (March ’11)
33.33 33.33

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 3) Hindustan Unilever Ltd.

Pre-Merger EPS and Post-Merger EPS: (in Rs. Cr.)

Pre-Merger EPS (March ’15) Post-Merger EPS (March ’16)
19.95 18.87

Pre-Merger DPS and Post-Merger DPS: (in Rs. Cr.)

Pre-Merger DPS (March ’15) Post-Merger DPS (March ’16)
15.00 16.00

Pre-Merger P/E and Post-Merger P/E Ratio:

Pre-Merger P/E (March ’15) Post-Merger P/E (March ’16)
50 50

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 Discussion
Scope of the study:

1. To gain more awareness about the types of mergers and acquisitions

2. To learn more about the FMCG Sector in India and it’s progress

3. To understand Investor’s reactions on rise and fall of EPS, DPS and P/E Ratio

Limitations of the study:

 Due to short span of time, research couldn’t be conducted deeply

 The recent and latest data couldn’t be taken into consideration in some cases

 Jyothy Laboratories Ltd.- Henkel India (May 2011)

Detergent and insect repellents maker Jyothy Laboratories Ltd on Thursday said that it
purchased Henkel AG and Co. KGaA’s 50.97% stake in its Indian unit for Rs 118.72 crore.

Jyothy Laboratories Ltd. hereby referred to as “Jyothy Lab”.

Henkel AG, the maker of Pril, Mr White and Henko, however, can come back to India’s fast-
growing Rs 45,000 crore personal care segment through a primary or secondary purchase of
as much as 26% stake in Jyothi Lab after five years.

With this acquisition, Jyothi Lab, the maker of fabric whitener Ujala Supreme and insects
repellent Maxo, will double its sales to Rs 1,200 crore and extend its presence into the
premium categories.

It will also have access to Henkel AG’s global brands and research and development (R&D).
Henkel India Ltd does not sell all brands of Henkel AG.

Mumbai-based Jyothy Lab will pay Rs 20 a share to buy 59.3 million shares in Henkel India.

Along with the cost of open offer, debt and preference shares, overall, Jyothy Lab’s
acquisition cost will be around Rs 818 crore, little less than two times the company’s
turnover.

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Jyothy Lab had initially bid Rs 10 a share. But as Henkel was not comfortable with the initial
offer price, Jyothy Lab doubled its offer price.

Jyothy Lab’s shares rose 7% to close at Rs 222.05 a piece on the Bombay Stock Exchange on
Thursday while Henkel’s share price fell 1.18% to Rs 33.55 a piece.

The price at which Jyothy Lab is acquiring Henkel India’s stake is 42.8% lower than the price
it had paid in March to acquire Tamilnadu Petroproducts Ltd’s 14.9% stake in Henkel for Rs
60.73 crore.

With this acquisition, Jyothy Lab will have a 65.87% stake in Henkel India. It will have to
make an open offer to acquire an additional 20% in Henkel India as required by the guidelines
of India’s capital market regulator.

While the acquisition will be financed through cash, Jyothy Lab will refinance the debt on
Henkel India’s books by taking a Rs 600 crore loan from Kotak Mahindra Bank Ltd.

Henkel India owes about Rs 454 crore to lenders, according to a Jyothy Lab release.

For the quarter ended 31 March, it posted a loss of Rs 18.33 crore on sales of Rs 119 crore.

Jyothy Lab posted a net profit of Rs 16.9 crore and sales of Rs 149.44 crore in the December
quarter.

Jyothy Lab will purchase 68 million preference shares in Henkel India from Henkel AG for
Rs 43.9 crore, subject to regulatory approvals, the company said.

Jyothy Lab had raised Rs 227.88 crore through qualified institutional placements in August
last year to pay for acquisitions. It will look at selling off some stake in the holding company
to private equity investors in a couple of months.

This will help them (Jyothy Lab) in strengthening their position in urban India. It will also
give them access to any new product launches of Henkel AG in the future.

The deal could prove synergistic for Jyothy Lab as both the companies are present in similar
product lines.

Henkel India and Jyothy Lab are both in the home care, fabric care, dish washing soap,
personal care and household cleaning segments.

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While Henkel predominantly caters to the urban distribution centres, Jyothy has targeted more
at the mid-market and economy segment.

Henkel has a 1.3% market share in the Rs 12,000 crore detergents category, according to
market researcher Nielsen Co.

However, detergents is a highly competitive segment with presence of large multinationals

such as Procter and Gamble Co., maker of Ariel and Tide, and Unilever Plc, maker of Surf
and Wheel.

High penetration in toilet soaps, packaged tea, washing powder and detergent cakes with
minimal scope of rise in usage has resulted in sluggish growth in these categories, according
to a Standard Chartered Bank report released in January.

Challenges for Jyothy Lab include turning it value accretive in a highly competitive market,

Henkel, which sells detergents and bath soaps in India including Henko, Mr White, Pril, Fa,
Neem and Margo, has been spending heavily on marketing

Marketing spends account for around 36% of sales and distribution for the company and there
is no volume growth.

MAPE Advisory Group Pvt. Ltd advised Jyothy Lab and HSBC Securities and Capital
Markets (India) Pvt. Ltd and HSBC Trinkaus and Burkhardt AG are the advisers to Henkel
AG for this transaction.

 Dabur India Ltd.- Namaste Group (January 2011)

FMCG major Dabur Monday said it has completed the acquisition of the US based
personal care firm Namaste Group for $100 million (about Rs 451 crore) in an all-cash
deal.

Dabur India Ltd. hereby referred to as “Dabur”.

The company’s wholly-owned subsidiary Dermoviva Skin Essentials has completed the
acquisition process by acquiring 100% stake in leading personal care companies of
Namaste Group, US.

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In November last year, Dabur had announced that it is acquiring Namaste Laboratories
LLC and its three subsidiary companies — Hair Rejuvenation & Revitalisation Nigeria
Limited, Healing Hair Laboratories International, LLC, and Urban Laboratories
International, LLC along with its South African arm.

The acquisition has been done through the US-based subsidiary Dermoviva Skin
Essentials, it added.

The completion of this acquisition represents a significant step for Dabur in their strategy
to accelerate growth in the international market.

The acquisition will help in consolidating and expanding Dabur’s presence in Africa,
“serving as one of the key pillars” in strengthening its position in the region.

Founded in 1996, Namaste Laboratories markets a portfolio of products under the brand
‘Organic root stimulator’ brands. It is present in the US, and in several other countries in
Africa, Middle East, Europe and Caribbean Region of North America.

The firm said the acquisition marks Dabur’s entry into the fast-growing $1.5-billion ethnic
hair care products market in the US, Europe and Africa.

This is the second overseas acquisition of the company within a span of one year. In
September, 2010, the company had completed acquisition of Turkish personal care firm
Hobi Kozmetik Group for $69 million (about Rs324 crore) to strengthen its presence in
the Middle East and North Africa.

Shares of Dabur India were trading at Rs100.85, up 0.60% from its previous close on the
Bombay Stock Exchange.

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• Hindustan Unilever Ltd. - Indulekha (December 2015)

Hindustan Unilever Ltd (HUL) informed BSE on Thursday its completion of formalities
required, for the agreement dated December 17, 2015, to acquire Mosons Group's flagship
brand, Indulekha.

Total consideration is around Rs 330 crore.

Hindustan Unilever Ltd. hereby referred to as “HUL”.

HUL will now sell hair oil, shampoo, skin care oil, face pack, cream, jasmin, sandal soap
products under the brand Indulekha and Vayodha. As per the agreement, the factory of
Moson's Group in Talassery will manufacture it for one year, on contract basis.

The acquisition was of brand and also Intellectual Property and technical knowhow and
HUL, with this, can manufacture these products in its own facility. Once HUL starts
production, from 2017-18, 10 per cent of the sales revenue would be given to Mosons
Group for five years. The acquisition value is a record for any brand sold out from Kerala.

The last big acquisition was Godrej acquiring Goodnight brand from Trans Electra
Domestic Products in 1994.

Under the agreement, Mosons Group should not manufacture such personal care products.
However, it could continue with manufacturing and export of coconut oil and construction
business.

Moreover, the Group is planning to establish a new brand named Indian Woman, to sell
various products made by women in small units, starting from dish-wash and soap powder
and toilet cleaner among others.

The sales revenue of Mosons Group including for Indulekha products was Rs 100 crore at
the time of sales. It has been sold in Kerala, Karnataka, Tamil Nadu, Maharashtra and
Middle East countries.

Indulekha brand was started in 2009 and has reached this feat in six years.

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Meaning of Earnings per Share:

The profitability of the shareholders’ investment can be measured in many ways. One
such measure is to calculate the earnings per share. The earnings per share (EPS) is
calculated by dividing the profit after taxes by the total number of ordinary shares
outstanding.

EPS calculations made over the years indicate whether or not the firm’s earnings power
on per-share basis has changed over that period. The EPS of the company should be
compared with the industry average and the earnings per share of other firms. EPS simply
shows the profitability of the firm on a per-share basis; it does not reflect how much is
paid as dividend and how much is retained in the business. But as a profitability index, it
is a valuable and widely used ratio.

Meaning of Dividend per Share:

The net profits after taxes belong to shareholders. But the income, which they really
receive, is the amount of earnings distributed as cash dividends. Therefore, a large number
of present and potential investors may be interested in DPS, rather than EPS. DPS is the
earnings distributed to ordinary shareholders divided by the number of ordinary shares
outstanding.

Meaning of Price-Earnings Ratio:

The price-earnings ratio is widely used by the security analysts to value the firm’s
performance as expected by investors. It indicates investors’ judgement or expectations
about the firm’s performance. Management is also interested in this market appraisal of
the firm’s performance and will like to find the causes if the P/E ratio declines.

P/E ratio reflects investors’ expectations about the growth in the firm’s earnings.
Industries differ in their growth prospects; accordingly, the P/E ratios for industries vary
widely.

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 Rise and Fall of EPS, DPS and P/E Ratio and Investor’s reaction:

Rise in EPS Fall in EPS

Investor will invest Investor won’t invest

Rise in DPS Fall in DPS

Investor will invest Investor won’t invest

Rise in P/E Ratio Fall in P/E Ratio

Investor won’t invest Investor will invest

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Probable reasons for Rise and fall:

Rise in EPS:
Increase in PAT
Fall in no. of shareholders

Fall in EPS:
Fall in PAT
Increase in no. of shareholders

Rise in DPS:
Increase in total dividends
Fall in no. of shareholders

Fall in DPS:
Fall in total dividends
Increase in no. of shareholders

Rise in P/E Ratio:

Rise in MPS
Fall in EPS

Fall in P/E Ratio:

Fall in MPS
Rise in EPS

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 Conclusion
Companies’ perspective: Mergers and Acquisitions help companies to gain greater market
share, enter new uncharted territories, increase their portfolio of products and services thus
reducing business risks and gaining more workforce/ employees or experts from that
particular target company. Also it gives opportunities for the acquiring company to grow and
develop further into a larger and stronger company.

Government perspective: Economies of scale is formed by sharing the resources and services.
Union of 2 firm's leads to overall cost reduction giving a competitive advantage, that is
feasible as a result of raised buying power and longer production runs.

Shareholders’ perspective: The shareholders of both companies may experience a dilution of

voting power due to the increased number of shares released during the merger process. This
phenomenon is prominent in stock-for-stock mergers, when the new company offers its shares
in exchange for the shares of the target company albeit at an agreed conversion rate.
Shareholders of the acquiring company experience a marginal loss of voting power, while
shareholders of a smaller target company may see a significant erosion of their voting powers
in the relatively larger pool of stakeholders.

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 Bibliography/References
1. https://blog.ipleaders.in/10-biggest-ever-merger-acquisition-deals-in-india/
2. https://www.ibef.org/industry/fmcg.aspx
3. The Internationalization of Firms From India: Investment, Mergers and
Acquisitions
Deepak Nayyar (2008) The Internationalization of Firms From India: Investment,
Mergers and Acquisitions, Oxford Development Studies, 36:1, 111-131
4. Comparison of Post-Merger performance of Acquiring Firms (India) involved in
Domestic and Cross-border acquisitions
Saboo, Sidharth and Gopi, Sunil (2009): Comparison of Post-Merger performance
of Acquiring Firms (India) involved in Domestic and Cross-border acquisitions.
5. https://www.cleverism.com/different-types-of-mergers-and-acquisitions-ma/
6. http://www.moneycontrol.com
7. https://www.livemint.com/Companies/lzVcai5nbKXnOfsE2RDRYJ/Jyothy-buys-
5097-stake-in-Henkel-India.html
8. https://www.livemint.com/Companies/YpO1SIYHYZNoYXcu4FYltM/Dabur-
completes-acquisition-of-USbased-Namaste-Group.html
9. http://www.business-standard.com/article/companies/hindustan-unilever-
completes-acquistion-of-indulekha-brand-for-rs-330-crore-116040700872_1.html
10. Financial Management Tenth Edition by I.M Pandey.
11. https://www.ukessays.com/essays/economics/advantages-and-disadvantages-of-
mergers-and-acquisition-economics-essay.php
12. https://www.investopedia.com/ask/answers/040815/how-does-merger-affect-
shareholders.asp

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